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Utahtaxhelp org Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. Utahtaxhelp org After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. Utahtaxhelp org Examination selection criteria. Utahtaxhelp org   Your return may be selected for examination on the basis of computer scoring. Utahtaxhelp org A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. Utahtaxhelp org If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. Utahtaxhelp org   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. Utahtaxhelp org Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. Utahtaxhelp org   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. Utahtaxhelp org This information can come from a number of sources, including newspapers, public records, and individuals. Utahtaxhelp org The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. Utahtaxhelp org Notice of IRS contact of third parties. Utahtaxhelp org    The IRS must give you reasonable notice before contacting other persons about your tax matters. Utahtaxhelp org You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. Utahtaxhelp org The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. Utahtaxhelp org    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. Utahtaxhelp org Taxpayer Advocate Service. Utahtaxhelp org   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. Utahtaxhelp org If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. Utahtaxhelp org    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. Utahtaxhelp org Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. Utahtaxhelp org   For more information, see Publication 1546. Utahtaxhelp org See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. Utahtaxhelp org Comments from small business. Utahtaxhelp org    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. Utahtaxhelp org The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. Utahtaxhelp org If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. Utahtaxhelp org Fax your comments to 1-202-481-5719. Utahtaxhelp org Write to the following address: Office of the National Ombudsman U. Utahtaxhelp org S. Utahtaxhelp org Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. Utahtaxhelp org Send an email to ombudsman@sba. Utahtaxhelp org gov. Utahtaxhelp org File a comment or complaint online at www. Utahtaxhelp org sba. Utahtaxhelp org gov/ombudsman. Utahtaxhelp org If Your Return Is Examined Some examinations are handled entirely by mail. Utahtaxhelp org Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. Utahtaxhelp org If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. Utahtaxhelp org However, the IRS makes the final determination of when, where, and how the examination will take place. Utahtaxhelp org Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. Utahtaxhelp org If you filed a joint return, either you or your spouse, or both, can meet with the IRS. Utahtaxhelp org The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. Utahtaxhelp org If you want someone to represent you in your absence, you must furnish that person with proper written authorization. Utahtaxhelp org You can use Form 2848 or any other properly written authorization. Utahtaxhelp org If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. Utahtaxhelp org In most cases, the IRS must suspend the interview and reschedule it. Utahtaxhelp org The IRS cannot suspend the interview if you are there because of an administrative summons. Utahtaxhelp org Third party authorization. Utahtaxhelp org   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. Utahtaxhelp org The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. Utahtaxhelp org For more information, see the instructions for your return. Utahtaxhelp org Confidentiality privilege. Utahtaxhelp org   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Utahtaxhelp org   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. Utahtaxhelp org   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. Utahtaxhelp org   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. Utahtaxhelp org Recordings. Utahtaxhelp org    You can make an audio recording of the examination interview. Utahtaxhelp org Your request to record the interview should be made in writing. Utahtaxhelp org You must notify the examiner 10 days in advance and bring your own recording equipment. Utahtaxhelp org The IRS also can record an interview. Utahtaxhelp org If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. Utahtaxhelp org Transfers to another area. Utahtaxhelp org    Generally, your return is examined in the area where you live. Utahtaxhelp org But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. Utahtaxhelp org Repeat examinations. Utahtaxhelp org    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. Utahtaxhelp org If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. Utahtaxhelp org The Examination An examination usually begins when you are notified that your return has been selected. Utahtaxhelp org The IRS will tell you which records you will need. Utahtaxhelp org The examination can proceed more easily if you gather your records before any interview. Utahtaxhelp org Any proposed changes to your return will be explained to you or your authorized representative. Utahtaxhelp org It is important that you understand the reasons for any proposed changes. Utahtaxhelp org You should not hesitate to ask about anything that is unclear to you. Utahtaxhelp org The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. Utahtaxhelp org The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. Utahtaxhelp org However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. Utahtaxhelp org Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. Utahtaxhelp org If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. Utahtaxhelp org A more complete discussion of appeal rights is found later under Appeal Rights . Utahtaxhelp org If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. Utahtaxhelp org You must pay interest on any additional tax. Utahtaxhelp org If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. Utahtaxhelp org If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. Utahtaxhelp org If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. Utahtaxhelp org This period is extended to 21 calendar days if the amount due is less than $100,000. Utahtaxhelp org If you are due a refund, you will receive it sooner if you sign the agreement form. Utahtaxhelp org You will be paid interest on the refund. Utahtaxhelp org If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. Utahtaxhelp org You should keep this letter with your tax records. Utahtaxhelp org If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. Utahtaxhelp org If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. Utahtaxhelp org If an agreement is reached, your case will be closed. Utahtaxhelp org If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. Utahtaxhelp org The examiner will forward your case for processing. Utahtaxhelp org Fast track mediation. Utahtaxhelp org   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. Utahtaxhelp org   Most cases that are not docketed in any court qualify for fast track mediation. Utahtaxhelp org Mediation can take place at a conference you request with a supervisor, or later. Utahtaxhelp org The process involves an Appeals Officer who has been trained in mediation. Utahtaxhelp org You may represent yourself at the mediation session, or someone else can act as your representative. Utahtaxhelp org For more information, see Publication 3605. Utahtaxhelp org 30-day letter and 90-day letter. Utahtaxhelp org   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. Utahtaxhelp org You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. Utahtaxhelp org The letter will explain what steps you should take, depending on which action you choose. Utahtaxhelp org Be sure to follow the instructions carefully. Utahtaxhelp org Appeal Rights are explained later. Utahtaxhelp org 90-day letter. Utahtaxhelp org   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. Utahtaxhelp org You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. Utahtaxhelp org Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . Utahtaxhelp org The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Utahtaxhelp org Suspension of interest and penalties. Utahtaxhelp org   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. Utahtaxhelp org However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. Utahtaxhelp org If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. Utahtaxhelp org   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. Utahtaxhelp org Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. Utahtaxhelp org    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. Utahtaxhelp org Seeking relief from improperly assessed interest. Utahtaxhelp org   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. Utahtaxhelp org   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. Utahtaxhelp org The IRS will review the Form 843 and notify you whether interest will be abated. Utahtaxhelp org If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. Utahtaxhelp org If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. Utahtaxhelp org   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. Utahtaxhelp org If the IRS denies your claim, the Tax Court may be able to review that determination. Utahtaxhelp org See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . Utahtaxhelp org If you later agree. Utahtaxhelp org    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. Utahtaxhelp org Keep a copy for your records. Utahtaxhelp org You can pay any additional amount you owe without waiting for a bill. Utahtaxhelp org Include interest on the additional tax at the applicable rate. Utahtaxhelp org This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. Utahtaxhelp org The examiner can tell you the interest rate(s) or help you figure the amount. Utahtaxhelp org   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. Utahtaxhelp org Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. Utahtaxhelp org   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. Utahtaxhelp org This period is extended to 21 calendar days if the amount due is less than $100,000. Utahtaxhelp org How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. Utahtaxhelp org Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. Utahtaxhelp org You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. Utahtaxhelp org Both a deposit and a payment stop any further accrual of interest. Utahtaxhelp org However, making a deposit or payment will stop the accrual of interest on only the amount you sent. Utahtaxhelp org Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. Utahtaxhelp org To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. Utahtaxhelp org Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. Utahtaxhelp org However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. Utahtaxhelp org Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. Utahtaxhelp org The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. Utahtaxhelp org The IRS determines that the deposit should be applied against another tax liability. Utahtaxhelp org Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). Utahtaxhelp org The deposit returned will be treated as a tax payment to the extent of the disputed tax. Utahtaxhelp org A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. Utahtaxhelp org Notice not mailed. Utahtaxhelp org    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. Utahtaxhelp org You must make your request in writing. Utahtaxhelp org   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. Utahtaxhelp org Keep copies of all correspondence you send to the IRS. Utahtaxhelp org   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. Utahtaxhelp org If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. Utahtaxhelp org See Tax Court , later under Appeal Rights . Utahtaxhelp org Notice mailed. Utahtaxhelp org    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. Utahtaxhelp org You will still be able to petition the Tax Court. Utahtaxhelp org   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. Utahtaxhelp org Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. Utahtaxhelp org The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. Utahtaxhelp org If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. Utahtaxhelp org Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. Utahtaxhelp org You will still have the right to take your case to the Tax Court. Utahtaxhelp org Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. Utahtaxhelp org To be valid, your request must be approved by the IRS. Utahtaxhelp org However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. Utahtaxhelp org Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. Utahtaxhelp org You will continue to be charged interest and penalties on the amount you owe until it is paid in full. Utahtaxhelp org Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). Utahtaxhelp org If your income is below a certain level, you may qualify to pay a reduced fee of $43. Utahtaxhelp org For more information about installment agreements, see Form 9465, Installment Agreement Request. Utahtaxhelp org Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). Utahtaxhelp org As a result, the net rate is zero for that period. Utahtaxhelp org Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). Utahtaxhelp org Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. Utahtaxhelp org The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. Utahtaxhelp org Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. Utahtaxhelp org An audit notification letter is such a contact. Utahtaxhelp org The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. Utahtaxhelp org Ministerial act. Utahtaxhelp org    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. Utahtaxhelp org A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. Utahtaxhelp org Example 1. Utahtaxhelp org You move from one state to another before the IRS selects your tax return for examination. Utahtaxhelp org A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. Utahtaxhelp org When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. Utahtaxhelp org The examination group manager approves your request. Utahtaxhelp org After your request has been approved, the transfer is a ministerial act. Utahtaxhelp org The IRS can reduce the interest because of any unreasonable delay in transferring the case. Utahtaxhelp org Example 2. Utahtaxhelp org An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. Utahtaxhelp org After you and the IRS discuss the issues, the notice is prepared and reviewed. Utahtaxhelp org After the review process, issuing the notice of deficiency is a ministerial act. Utahtaxhelp org If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. Utahtaxhelp org Managerial act. Utahtaxhelp org    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. Utahtaxhelp org A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Utahtaxhelp org Example. Utahtaxhelp org A revenue agent is examining your tax return. Utahtaxhelp org During the middle of the examination, the agent is sent to an extended training course. Utahtaxhelp org The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. Utahtaxhelp org Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. Utahtaxhelp org How to request abatement of interest. Utahtaxhelp org    You request an abatement (reduction) of interest on Form 843. Utahtaxhelp org You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. Utahtaxhelp org   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. Utahtaxhelp org If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. Utahtaxhelp org   Generally, you should file a separate Form 843 for each tax period and each type of tax. Utahtaxhelp org However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). Utahtaxhelp org   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. Utahtaxhelp org Tax Court can review failure to abate interest. Utahtaxhelp org    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. Utahtaxhelp org The IRS has mailed you a notice of final determination or a notice of disallowance. Utahtaxhelp org You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. Utahtaxhelp org   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. Utahtaxhelp org For this purpose, individuals filing a joint return shall be treated as separate individuals. Utahtaxhelp org For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. Utahtaxhelp org For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. Utahtaxhelp org Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. Utahtaxhelp org The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. Utahtaxhelp org The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. Utahtaxhelp org If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. Utahtaxhelp org To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. Utahtaxhelp org Notify you when the adjustments are made. Utahtaxhelp org Refund any interest paid by you where appropriate. Utahtaxhelp org For more information on disaster area losses, see Disaster Area Losses in Publication 547. Utahtaxhelp org For more information on other tax relief for victims of terrorist attacks, see Publication 3920. Utahtaxhelp org Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. Utahtaxhelp org If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. Utahtaxhelp org The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). Utahtaxhelp org There is doubt as to whether you can pay the amount you owe based on your financial situation. Utahtaxhelp org An economic hardship would result if you had to pay the full amount owed. Utahtaxhelp org Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. Utahtaxhelp org If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. Utahtaxhelp org The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. Utahtaxhelp org For more information, see Publication 3605. Utahtaxhelp org Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. Utahtaxhelp org The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. Utahtaxhelp org The 30 days immediately after the offer is rejected. Utahtaxhelp org While your timely-filed appeal is being considered by Appeals. Utahtaxhelp org Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. Utahtaxhelp org For more information about submitting an offer in compromise, see Form 656. Utahtaxhelp org Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. Utahtaxhelp org Most differences can be settled within this system without expensive and time-consuming court trials. Utahtaxhelp org However, your reasons for disagreeing must come within the scope of the tax laws. Utahtaxhelp org For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. Utahtaxhelp org In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. Utahtaxhelp org See Appeals to the Courts , later, for more information. Utahtaxhelp org Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. Utahtaxhelp org The Appeals Office is the only level of appeal within the IRS. Utahtaxhelp org Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. Utahtaxhelp org If you want an appeals conference, follow the instructions in the letter you received. Utahtaxhelp org Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. Utahtaxhelp org You or your representative should be prepared to discuss all disputed issues at the conference. Utahtaxhelp org Most differences are settled at this level. Utahtaxhelp org If agreement is not reached at your appeals conference, you may be eligible to take your case to court. Utahtaxhelp org See Appeals to the Courts , later. Utahtaxhelp org Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. Utahtaxhelp org Also, see the special appeal request procedures in Publication 1660. Utahtaxhelp org Written protest. Utahtaxhelp org   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. Utahtaxhelp org All partnership and S corporation cases without regard to the dollar amount at issue. Utahtaxhelp org All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. Utahtaxhelp org   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. Utahtaxhelp org The IRS urges you to provide as much information as you can, as it will help speed up your appeal. Utahtaxhelp org That will save you both time and money. Utahtaxhelp org    Be sure to send the protest within the time limit specified in the letter you received. Utahtaxhelp org Small case request. Utahtaxhelp org   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. Utahtaxhelp org In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. Utahtaxhelp org If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. Utahtaxhelp org For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. Utahtaxhelp org Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. Utahtaxhelp org If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. Utahtaxhelp org You can use a Form 2848 or any other properly written power of attorney or authorization. Utahtaxhelp org You can also bring witnesses to support your position. Utahtaxhelp org Confidentiality privilege. Utahtaxhelp org   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Utahtaxhelp org See Confidentiality privilege under If Your Return Is Examined , earlier. Utahtaxhelp org Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. Utahtaxhelp org These courts are independent of the IRS. Utahtaxhelp org If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. Utahtaxhelp org However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. Utahtaxhelp org If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. Utahtaxhelp org See Appeal Within the IRS, earlier. Utahtaxhelp org Prohibition on requests to taxpayers to give up rights to bring civil action. Utahtaxhelp org   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. Utahtaxhelp org However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. Utahtaxhelp org Burden of proof. Utahtaxhelp org   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. Utahtaxhelp org You complied with all substantiation requirements of the Internal Revenue Code. Utahtaxhelp org You maintained all records required by the Internal Revenue Code. Utahtaxhelp org You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. Utahtaxhelp org You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. Utahtaxhelp org    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. Utahtaxhelp org Use of statistical information. Utahtaxhelp org   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. Utahtaxhelp org Penalties. Utahtaxhelp org   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. Utahtaxhelp org Recovering litigation or administrative costs. Utahtaxhelp org   These are the expenses that you pay to defend your position to the IRS or the courts. Utahtaxhelp org You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. Utahtaxhelp org You exhaust all administrative remedies within the IRS. Utahtaxhelp org Your net worth is below a certain limit (see Net worth requirements , later). Utahtaxhelp org You do not unreasonably delay the proceeding. Utahtaxhelp org You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. Utahtaxhelp org You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. Utahtaxhelp org ustaxcourt. Utahtaxhelp org gov  www. Utahtaxhelp org ustaxcourt. Utahtaxhelp org gov . Utahtaxhelp org   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. Utahtaxhelp org Note. Utahtaxhelp org If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. Utahtaxhelp org Prevailing party. Utahtaxhelp org   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. Utahtaxhelp org   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. Utahtaxhelp org The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. Utahtaxhelp org ), or Has lost in courts of appeal for other circuits on substantially similar issues. Utahtaxhelp org   The court will generally decide who is the prevailing party. Utahtaxhelp org Reasonable litigation costs. Utahtaxhelp org   These include the following costs: Reasonable court costs. Utahtaxhelp org The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. Utahtaxhelp org The reasonable costs of expert witnesses. Utahtaxhelp org Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Utahtaxhelp org See Attorney fees , later. Utahtaxhelp org Reasonable administrative costs. Utahtaxhelp org   These include the following costs: Any administrative fees or similar charges imposed by the IRS. Utahtaxhelp org The reasonable costs of studies, analyses, engineering reports, tests, or projects. Utahtaxhelp org The reasonable costs of expert witnesses. Utahtaxhelp org Attorney fees that generally may not exceed $125 per hour. Utahtaxhelp org See Attorney fees , later. Utahtaxhelp org Timing of costs. Utahtaxhelp org    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. Utahtaxhelp org Net worth requirements. Utahtaxhelp org   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. Utahtaxhelp org For this purpose, individuals filing a joint return are treated as separate individuals. Utahtaxhelp org For estates — your net worth does not exceed $2 million as of the date of the decedent's death. Utahtaxhelp org For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. Utahtaxhelp org For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. Utahtaxhelp org Qualified offer rule. Utahtaxhelp org    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. Utahtaxhelp org You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. Utahtaxhelp org Qualified offer. Utahtaxhelp org    This is a written offer made by you during the qualified offer period. Utahtaxhelp org It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. Utahtaxhelp org   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. Utahtaxhelp org Qualified offer period. Utahtaxhelp org    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. Utahtaxhelp org It ends 30 days before your case is first set for trial. Utahtaxhelp org Attorney fees. Utahtaxhelp org   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Utahtaxhelp org However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. Utahtaxhelp org See IRS. Utahtaxhelp org gov for more information. Utahtaxhelp org    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. Utahtaxhelp org In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. Utahtaxhelp org   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. Utahtaxhelp org Jurisdiction for determination of employment status. Utahtaxhelp org    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. Utahtaxhelp org Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). Utahtaxhelp org   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. Utahtaxhelp org S. Utahtaxhelp org Tax Court for a determination of employment status. Utahtaxhelp org There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. Utahtaxhelp org   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. Utahtaxhelp org Section 530(a) of the Revenue Act of 1978. Utahtaxhelp org   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. Utahtaxhelp org It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. Utahtaxhelp org Tax Court review of request for relief from joint and several liability on a joint return. Utahtaxhelp org    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). Utahtaxhelp org You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. Utahtaxhelp org   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. Utahtaxhelp org See Publication 971 for more information. Utahtaxhelp org Note. Utahtaxhelp org Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. Utahtaxhelp org See Rev. Utahtaxhelp org Proc. Utahtaxhelp org 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. Utahtaxhelp org irs. Utahtaxhelp org gov/pub/irs-irbs/irb03-05. Utahtaxhelp org pdf. Utahtaxhelp org Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. Utahtaxhelp org For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. Utahtaxhelp org For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. Utahtaxhelp org For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. Utahtaxhelp org You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. Utahtaxhelp org You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). Utahtaxhelp org The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Utahtaxhelp org Withdrawal of notice of deficiency. Utahtaxhelp org If you consent, the IRS can withdraw a notice of deficiency. Utahtaxhelp org A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. Utahtaxhelp org However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. Utahtaxhelp org See Revenue Procedure 98-54 for a more detailed explanation of the requirements. Utahtaxhelp org Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. Utahtaxhelp org The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. Utahtaxhelp org After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. Utahtaxhelp org Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. Utahtaxhelp org Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. Utahtaxhelp org If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. Utahtaxhelp org Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). Utahtaxhelp org Collection can proceed even if you think that the amount is excessive. Utahtaxhelp org Publication 594 explains IRS collection procedures. Utahtaxhelp org If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. Utahtaxhelp org You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. Utahtaxhelp org Small tax case procedure. Utahtaxhelp org   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. Utahtaxhelp org If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. Utahtaxhelp org You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. Utahtaxhelp org W. Utahtaxhelp org , Washington, DC 20217. Utahtaxhelp org More information can be found on the Tax Court's website at www. Utahtaxhelp org ustaxcourt. Utahtaxhelp org gov. Utahtaxhelp org Motion to request redetermination of interest. Utahtaxhelp org   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. Utahtaxhelp org You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. Utahtaxhelp org The assessment included interest. Utahtaxhelp org You have paid the entire amount of the deficiency plus the interest claimed by the IRS. Utahtaxhelp org The Tax Court has found that you made an overpayment. Utahtaxhelp org You must file the motion within one year after the decision of the Tax Court becomes final. Utahtaxhelp org District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. Utahtaxhelp org The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. Utahtaxhelp org Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Utahtaxhelp org Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. Utahtaxhelp org As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. Utahtaxhelp org If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. Utahtaxhelp org If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. Utahtaxhelp org You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. Utahtaxhelp org However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. Utahtaxhelp org You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. Utahtaxhelp org However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. Utahtaxhelp org For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. Utahtaxhelp org Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. Utahtaxhelp org In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. Utahtaxhelp org The court can order these refunds before its decision on the case is final. Utahtaxhelp org Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. Utahtaxhelp org Note. Utahtaxhelp org The court may no longer order a refund of an overpayment after the case is final. Utahtaxhelp org Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. Utahtaxhelp org Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. Utahtaxhelp org You can claim a credit or refund by filing Form 1040X. Utahtaxhelp org See Time for Filing a Claim for Refund , later. Utahtaxhelp org File your claim by mailing it to the IRS Service Center where you filed your original return. Utahtaxhelp org File a separate form for each year or period involved. Utahtaxhelp org Include an explanation of each item of income, deduction, or credit on which you are basing your claim. Utahtaxhelp org Corporations should file Form 1120X, Amended U. Utahtaxhelp org S. Utahtaxhelp org Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. Utahtaxhelp org See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. Utahtaxhelp org Requesting a copy of your tax return. Utahtaxhelp org   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. Utahtaxhelp org This includes a copy of the Form W-2 or Form 1099 filed with your return. Utahtaxhelp org Use Form 4506 to make your request. Utahtaxhelp org You will be charged a fee, which you must pay when you submit Form 4506. Utahtaxhelp org Requesting a copy of your tax account information. Utahtaxhelp org   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. Utahtaxhelp org The tax return transcript contains most of the line items of a tax return. Utahtaxhelp org A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. Utahtaxhelp org A record of account is a combination of line item information and later adjustments to the account. Utahtaxhelp org Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. Utahtaxhelp org Penalty for erroneous claim for refund. Utahtaxhelp org   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. Utahtaxhelp org An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. Utahtaxhelp org The penalty may be waived if you can show that you had a reasonable basis for making the claim. Utahtaxhelp org Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. Utahtaxhelp org If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. Utahtaxhelp org If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. Utahtaxhelp org Returns you filed before the due date are considered filed on the due date. Utahtaxhelp org This is true even when the due date is a Saturday, Sunday, or legal holiday. Utahtaxhelp org Disaster area claims for refund. Utahtaxhelp org   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. Utahtaxhelp org This section discusses the special rules that apply to Presidentially declared disaster area refunds. Utahtaxhelp org    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. Utahtaxhelp org Postponed refund deadlines. Utahtaxhelp org   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. Utahtaxhelp org The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. Utahtaxhelp org The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Utahtaxhelp org For more information, see Publication 547. Utahtaxhelp org   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. Utahtaxhelp org A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. Utahtaxhelp org fema. Utahtaxhelp org gov and at the IRS website at www. Utahtaxhelp org irs. Utahtaxhelp org gov. Utahtaxhelp org Nonfilers can get refund of overpayments paid within 3-year period. Utahtaxhelp org   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. Utahtaxhelp org This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. Utahtaxhelp org The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. Utahtaxhelp org For more information, see Publication 3920. Utahtaxhelp org Claim for refund by estates electing the installment method of payment. Utahtaxhelp org   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. Utahtaxhelp org S. Utahtaxhelp org District Court or the U. Utahtaxhelp org S. Utahtaxhelp org Court of Federal Claims before all the installment payments have been made. Utahtaxhelp org However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. Utahtaxhelp org All installment payments due on or before the date the suit is filed have been made. Utahtaxhelp org No accelerated installment payments have been made. Utahtaxhelp org No Tax Court case is pending with respect to any estate tax liability. Utahtaxhelp org If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. Utahtaxhelp org No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. Utahtaxhelp org The executor has not included any previously litigated issues in the current suit for refund. Utahtaxhelp org The executor does not discontinue making installment payments timely, while the court considers the suit for refund. Utahtaxhelp org    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. Utahtaxhelp org This includes any part of the disallowed amount previously collected by the IRS. Utahtaxhelp org Protective claim for refund. Utahtaxhelp org   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. Utahtaxhelp org A protective claim can be either a formal claim or an amended return for credit or refund. Utahtaxhelp org Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. Utahtaxhelp org A protective claim preserves your right to claim a refund when the contingency is resolved. Utahtaxhelp org A protective claim does not have to state a particular dollar amount or demand an immediate refund. Utahtaxhelp org However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. Utahtaxhelp org   Generally, the IRS will delay action on the protective claim until the contingency is resolved. Utahtaxhelp org Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. Utahtaxhelp org   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. Utahtaxhelp org Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. Utahtaxhelp org Special refunds. Utahtaxhelp org   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. Utahtaxhelp org These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. Utahtaxhelp org   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. Utahtaxhelp org For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. Utahtaxhelp org Periods of financial disability. Utahtaxhelp org   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. Utahtaxhelp org    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. Utahtaxhelp org   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. Utahtaxhelp org Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. Utahtaxhelp org    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. Utahtaxhelp org Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi
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Utahtaxhelp org 12. Utahtaxhelp org   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. Utahtaxhelp org Name change. Utahtaxhelp org Penalty for underpayment of estimated tax. Utahtaxhelp org Who Must Pay Self-Employment Tax?Limited partner. Utahtaxhelp org Community property. Utahtaxhelp org Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. Utahtaxhelp org  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Utahtaxhelp org 4% to 12. Utahtaxhelp org 4%. Utahtaxhelp org The Medicare part of the tax remains at 2. Utahtaxhelp org 9%. Utahtaxhelp org As a result, the self-employment tax is increased from 13. Utahtaxhelp org 3% to 15. Utahtaxhelp org 3%. Utahtaxhelp org Additional Medicare Tax. Utahtaxhelp org . Utahtaxhelp org  For tax years beginning in 2013, a 0. Utahtaxhelp org 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Utahtaxhelp org Use Form 8959, Additional Medicare Tax, to figure this tax. Utahtaxhelp org For more information, see the Instructions for Form 8959. Utahtaxhelp org Maximum net earnings. Utahtaxhelp org  The maximum net self-employment earnings subject to the social security part (12. Utahtaxhelp org 4%) of the self-employment tax increased to $113,700 for 2013. Utahtaxhelp org There is no maximum limit on earnings subject to the Medicare part (2. Utahtaxhelp org 9%). Utahtaxhelp org What's New for 2014 Maximum net earnings. Utahtaxhelp org  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Utahtaxhelp org Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Utahtaxhelp org It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Utahtaxhelp org You usually have to pay SE tax if you are self-employed. Utahtaxhelp org You are usually self-employed if you operate your own farm on land you either own or rent. Utahtaxhelp org You have to figure SE tax on Schedule SE (Form 1040). Utahtaxhelp org Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Utahtaxhelp org See chapter 13 for information on employment taxes. Utahtaxhelp org Self-employment tax rate. Utahtaxhelp org   For tax years beginning in 2013, the self-employment tax rate is 15. Utahtaxhelp org 3%. Utahtaxhelp org The rate consists of two parts: 12. Utahtaxhelp org 4% for social security (old-age, survivors, and disability insurance) and 2. Utahtaxhelp org 9% for Medicare (hospital insurance). Utahtaxhelp org Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. Utahtaxhelp org S. Utahtaxhelp org Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Utahtaxhelp org S. Utahtaxhelp org Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Utahtaxhelp org See chapter 16 for information about getting publications and forms. Utahtaxhelp org Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Utahtaxhelp org Your payments of SE tax contribute to your coverage under the social security system. Utahtaxhelp org Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Utahtaxhelp org How to become insured under social security. Utahtaxhelp org   You must be insured under the social security system before you begin receiving social security benefits. Utahtaxhelp org You are insured if you have the required number of credits (also called quarters of coverage). Utahtaxhelp org Earning credits in 2013. Utahtaxhelp org   You can earn a maximum of four credits per year. Utahtaxhelp org For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Utahtaxhelp org You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. Utahtaxhelp org It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Utahtaxhelp org For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. Utahtaxhelp org socialsecurity. Utahtaxhelp org gov. Utahtaxhelp org Making false statements to get or to increase social security benefits may subject you to penalties. Utahtaxhelp org The Social Security Administration (SSA) time limit for posting self-employment earnings. Utahtaxhelp org   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Utahtaxhelp org    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. Utahtaxhelp org The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Utahtaxhelp org How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). Utahtaxhelp org This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Utahtaxhelp org An ITIN does not entitle you to social security benefits. Utahtaxhelp org Obtaining an ITIN does not change your immigration or employment status under U. Utahtaxhelp org S. Utahtaxhelp org law. Utahtaxhelp org Obtaining a social security number. Utahtaxhelp org   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Utahtaxhelp org The application is also available in Spanish. Utahtaxhelp org You can get this form at any Social Security office or by calling 1-800-772-1213. Utahtaxhelp org    You can also download Form SS-5 from the Social Security Administration website at  www. Utahtaxhelp org socialsecurity. Utahtaxhelp org gov. Utahtaxhelp org   If you have a social security number from the time you were an employee, you must use that number. Utahtaxhelp org Do not apply for a new one. Utahtaxhelp org Replacing a lost social security card. Utahtaxhelp org   If you have a number but lost your card, file Form SS-5. Utahtaxhelp org You will get a new card showing your original number, not a new number. Utahtaxhelp org Name change. Utahtaxhelp org   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Utahtaxhelp org Obtaining an individual taxpayer identification number. Utahtaxhelp org   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. Utahtaxhelp org To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Utahtaxhelp org You can get this form by calling 1-800-829-3676. Utahtaxhelp org For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Utahtaxhelp org Form W-7 and Publication 1915 are also available in Spanish. Utahtaxhelp org    You can also download Form W-7 from the IRS website at IRS. Utahtaxhelp org gov. Utahtaxhelp org Paying estimated tax. Utahtaxhelp org   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Utahtaxhelp org You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. Utahtaxhelp org Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Utahtaxhelp org   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. Utahtaxhelp org For more information about estimated tax for farmers, see chapter 15. Utahtaxhelp org Penalty for underpayment of estimated tax. Utahtaxhelp org   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Utahtaxhelp org Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Utahtaxhelp org The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Utahtaxhelp org Aliens. Utahtaxhelp org   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Utahtaxhelp org S. Utahtaxhelp org citizens. Utahtaxhelp org Nonresident aliens are not subject to self-employment tax. Utahtaxhelp org However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Utahtaxhelp org S. Utahtaxhelp org residents for self-employment tax purposes. Utahtaxhelp org For more information on aliens, see Publication 519, U. Utahtaxhelp org S. Utahtaxhelp org Tax Guide for Aliens. Utahtaxhelp org Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. Utahtaxhelp org A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Utahtaxhelp org Share farmer. Utahtaxhelp org   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Utahtaxhelp org You produce a crop or raise livestock on land belonging to another person. Utahtaxhelp org Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Utahtaxhelp org Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. Utahtaxhelp org   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. Utahtaxhelp org This will depend on whether the landowner has the right to direct or control your performance of services. Utahtaxhelp org Example. Utahtaxhelp org A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Utahtaxhelp org Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Utahtaxhelp org The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Utahtaxhelp org The share farmer is provided a house in which to live. Utahtaxhelp org The landowner and the share farmer decide on a cropping plan. Utahtaxhelp org The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. Utahtaxhelp org The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Utahtaxhelp org Contract farming. Utahtaxhelp org   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. Utahtaxhelp org Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. Utahtaxhelp org 4-H Club or FFA project. Utahtaxhelp org   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. Utahtaxhelp org Report the net income as “Other income” on line 21 of Form 1040. Utahtaxhelp org If necessary, attach a statement showing the gross income and expenses. Utahtaxhelp org The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Utahtaxhelp org Such a project is generally not considered a trade or business. Utahtaxhelp org Partners in a partnership. Utahtaxhelp org   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Utahtaxhelp org Limited partner. Utahtaxhelp org   If you are a limited partner, your partnership income is generally not subject to SE tax. Utahtaxhelp org However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). Utahtaxhelp org Business Owned and Operated by Spouses. Utahtaxhelp org   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. Utahtaxhelp org You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Utahtaxhelp org Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Utahtaxhelp org Qualified joint venture. Utahtaxhelp org   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Utahtaxhelp org For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Utahtaxhelp org   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Utahtaxhelp org Each of you must file a separate Schedule F and a separate Schedule SE. Utahtaxhelp org For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Utahtaxhelp org Spouse employee. Utahtaxhelp org   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Utahtaxhelp org For more information about employment taxes, see chapter 13. Utahtaxhelp org Community property. Utahtaxhelp org   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. Utahtaxhelp org Do not treat any of your share as self-employment earnings of your spouse. Utahtaxhelp org Figuring Self-Employment Earnings Farmer. Utahtaxhelp org   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Utahtaxhelp org Partnership income or loss. Utahtaxhelp org   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). Utahtaxhelp org Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Utahtaxhelp org Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). Utahtaxhelp org   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. Utahtaxhelp org   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Utahtaxhelp org   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Utahtaxhelp org   For general information on partnerships, see Publication 541. Utahtaxhelp org More than one business. Utahtaxhelp org   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. Utahtaxhelp org A loss from one business reduces your profit from another business. Utahtaxhelp org However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. Utahtaxhelp org Community property. Utahtaxhelp org   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. Utahtaxhelp org Lost income payments. Utahtaxhelp org   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Utahtaxhelp org These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Utahtaxhelp org Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). Utahtaxhelp org A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Utahtaxhelp org Gain or loss. Utahtaxhelp org   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. Utahtaxhelp org It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Utahtaxhelp org For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Utahtaxhelp org Investment property. Utahtaxhelp org Depreciable property or other fixed assets used in your trade or business. Utahtaxhelp org Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. Utahtaxhelp org Unharvested standing crops sold with land held more than 1 year. Utahtaxhelp org Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. Utahtaxhelp org   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. Utahtaxhelp org For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Utahtaxhelp org Wages and salaries. Utahtaxhelp org   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. Utahtaxhelp org   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Utahtaxhelp org Retired partner. Utahtaxhelp org   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. Utahtaxhelp org The retired partner performs no services for the partnership during the year. Utahtaxhelp org The retired partner is owed only the retirement payments. Utahtaxhelp org The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Utahtaxhelp org The payments to the retired partner are lifelong periodic payments. Utahtaxhelp org Conservation Reserve Program (CRP) payments. Utahtaxhelp org   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. Utahtaxhelp org You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Utahtaxhelp org Cost share payments you receive may qualify for the costsharing exclusion. Utahtaxhelp org See Cost-Sharing Exclusion (Improvements), above. Utahtaxhelp org CRP payments are reported to you on Form 1099G. Utahtaxhelp org Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Utahtaxhelp org See the instructions for Schedule SE (Form 1040). Utahtaxhelp org Self-employed health insurance deduction. Utahtaxhelp org   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). Utahtaxhelp org Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. Utahtaxhelp org However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. Utahtaxhelp org Crop shares. Utahtaxhelp org   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. Utahtaxhelp org Feeding such crop shares to livestock is considered using them. Utahtaxhelp org Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Utahtaxhelp org Material participation for landlords. Utahtaxhelp org   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Utahtaxhelp org You do at least three of the following. Utahtaxhelp org Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Utahtaxhelp org Furnish at least half the tools, equipment, and livestock used in the production activities. Utahtaxhelp org Advise or consult with your tenant. Utahtaxhelp org Inspect the production activities periodically. Utahtaxhelp org You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Utahtaxhelp org You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Utahtaxhelp org You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Utahtaxhelp org These tests may be used as general guides for determining whether you are a material participant. Utahtaxhelp org Example. Utahtaxhelp org Drew Houston agrees to produce a crop on J. Utahtaxhelp org Clarke's cotton farm, with each receiving half the proceeds. Utahtaxhelp org Clarke advises Houston when to plant, spray, and pick the cotton. Utahtaxhelp org During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Utahtaxhelp org Houston furnishes all labor needed to grow and harvest the crop. Utahtaxhelp org The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. Utahtaxhelp org The income Clarke receives from his cotton farm is included in his self-employment earnings. Utahtaxhelp org Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Utahtaxhelp org The regular method. Utahtaxhelp org The farm optional method. Utahtaxhelp org The nonfarm optional method. Utahtaxhelp org You must use the regular method unless you are eligible to use one or both of the optional methods. Utahtaxhelp org See Figure 12-1 , shown later. Utahtaxhelp org Figure 12-1. Utahtaxhelp org Can I Use the Optional Methods? Please click here for the text description of the image. Utahtaxhelp org Figure 12–1. Utahtaxhelp org Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Utahtaxhelp org You want to receive credit for social security benefit coverage. Utahtaxhelp org You incurred child or dependent care expenses for which you could claim a credit. Utahtaxhelp org (An optional method may increase your earned income, which could increase your credit. Utahtaxhelp org ) You are entitled to the earned income credit. Utahtaxhelp org (An optional method may increase your earned income, which could increase your credit. Utahtaxhelp org ) You are entitled to the additional child tax credit. Utahtaxhelp org (An optional method may increase your earned income, which could increase your credit. Utahtaxhelp org ) Effects of using an optional method. Utahtaxhelp org   Using an optional method could increase your SE tax. Utahtaxhelp org Paying more SE tax may result in you getting higher social security disability or retirement benefits. Utahtaxhelp org   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. Utahtaxhelp org   The optional methods may be used only to figure your SE tax. Utahtaxhelp org To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Utahtaxhelp org Regular Method Multiply your total self-employment earnings by 92. Utahtaxhelp org 35% (. Utahtaxhelp org 9235) to get your net earnings under the regular method. Utahtaxhelp org See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Utahtaxhelp org Net earnings figured using the regular method are also called “actual net earnings. Utahtaxhelp org ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Utahtaxhelp org You can use this method if you meet either of the following tests. Utahtaxhelp org Your gross farm income is $6,960 or less. Utahtaxhelp org Your net farm profits are less than $5,024. Utahtaxhelp org Gross farm income. Utahtaxhelp org   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). Utahtaxhelp org Net farm profits. Utahtaxhelp org   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). Utahtaxhelp org However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Utahtaxhelp org For more information, see Partnership income or loss , earlier. Utahtaxhelp org Figuring farm net earnings. Utahtaxhelp org   If you meet either of the two tests explained above, use Table 12-1. Utahtaxhelp org Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Utahtaxhelp org Table 12-1. Utahtaxhelp org Figuring Farm Net Earnings IF your gross farm income  is. Utahtaxhelp org . Utahtaxhelp org . Utahtaxhelp org THEN your net earnings are equal to. Utahtaxhelp org . Utahtaxhelp org . Utahtaxhelp org $6,960 or less Two-thirds of your gross farm income. Utahtaxhelp org More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Utahtaxhelp org   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. Utahtaxhelp org Your actual net earnings are your net earnings figured using the regular method, explained earlier. Utahtaxhelp org Example. Utahtaxhelp org Your gross farm income is $540 and your net farm profit is $460. Utahtaxhelp org Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Utahtaxhelp org 35% of $460). Utahtaxhelp org You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Utahtaxhelp org Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Utahtaxhelp org If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Utahtaxhelp org You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. Utahtaxhelp org For more information about the nonfarm optional method, see Publication 334. Utahtaxhelp org You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Utahtaxhelp org Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. Utahtaxhelp org You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Utahtaxhelp org If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Utahtaxhelp org Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Utahtaxhelp org Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Utahtaxhelp org Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Utahtaxhelp org However, certain taxpayers must use Section B–Long Schedule SE. Utahtaxhelp org Use the chart on page 1 of Schedule SE to find out which one to use. Utahtaxhelp org If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Utahtaxhelp org Deduction for employer-equivalent portion of self-employment tax. Utahtaxhelp org   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Utahtaxhelp org This deduction only affects your income tax. Utahtaxhelp org It does not affect either your net earnings from self-employment or your SE tax. Utahtaxhelp org   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. Utahtaxhelp org Joint return. Utahtaxhelp org   Even if you file a joint return, you cannot file a joint Schedule SE. Utahtaxhelp org This is true whether one spouse or both spouses have self-employment earnings. Utahtaxhelp org Your spouse is not considered self-employed just because you are. Utahtaxhelp org If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Utahtaxhelp org However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Utahtaxhelp org Attach both schedules to the joint return. Utahtaxhelp org If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . Utahtaxhelp org Prev  Up  Next   Home   More Online Publications